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Article
Publication date: 5 November 2020

Jorge Andrés Muñoz Mendoza, Sandra María Sepúlveda Yelpo, Carmen Lissette Velosos Ramos and Carlos Leandro Delgado Fuentealba

The purpose of this article is to analyze the effects of the integration process for the Integrated Market of Latin America (MILA) on its stock markets behavior as well as their…

Abstract

Purpose

The purpose of this article is to analyze the effects of the integration process for the Integrated Market of Latin America (MILA) on its stock markets behavior as well as their degree of integration.

Design/methodology/approach

Daily time series data were used for stock returns, volatility, volume and the number of transactions and securities between August 16, 2007 and December 28, 2018. A DCC-MGARCH model was applied to analyze the impact of MILA on stock market behavior and predict dynamic correlations. A GARCH (1,1) model was used to determine the effect of MILA on co-movements between markets. Finally, a Markov regime switching model was used for robustness analysis.

Findings

MILA increased stock market activity in terms of volume, transactions and securities traded. However, it reduced returns and volatility. MILA had significant effects on the dynamic correlations between regional stock markets. After the integration process, the dynamic correlations of returns and volatility were reduced, but those related to volume, transactions and securities traded increased. Mexico's subsequent entry into MILA further reduced market volatility, but it did not have relevant effects on markets' co-movements.

Originality/value

These results are relevant for investors and policymakers. MILA has benefited the markets by promoting stock market activity, reducing risk, creating a margin for diversification and limiting risk contagion between them. These results help to guide investment decisions due to the fact that MILA's benefits in terms of regional diversification would be greater in some markets.

Details

International Journal of Emerging Markets, vol. 17 no. 2
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 15 August 2016

Changqing Luo, Mengzhen Li and Zisheng Ouyang

– The purpose of this paper is to study the correlation structure of the credit spreads.

Abstract

Purpose

The purpose of this paper is to study the correlation structure of the credit spreads.

Design/methodology/approach

The minimal spanning tree is used to find the risk center node and the basic correlation structure of the credit spreads. The dynamic copula and pair copula models are applied to capture the dynamic and non-linear correlation structure.

Findings

The authors take the enterprise bond with trading data from January 2013 to December 2013 as the research sample. The empirical study of minimum spanning tree shows that the credit risk of corporate bonds forms a network structure with a center node. Meanwhile, the correlation between credit spreads shows dynamic characteristics. Under the framework of dynamic copula, the lower tail dependence is less than the upper tail dependence, thus, in economic boom period, the dynamic correlation is more significant than in recession period. The authors also find that the centrality of credit risk network is not significant according to the pair copula and Granger causality test. The empirical study shows that the goodness-of-fit of D vine is superior to Canonical vine, and the Granger causality test additionally proves that the center node has influence on few other nodes in the risk network, thus the center node captured by the minimum spanning tree is a weak center node, and this characteristic of credit risk network indicates that the risk network of credit spreads is generated mostly by the external shocks rather than the internal risk contagion.

Originality/value

This paper provides new ideas for investors and researchers to analyze the credit risk correlation or contagion.

Details

China Finance Review International, vol. 6 no. 3
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 21 September 2021

Mahdi Ghaemi Asl, Muhammad Mahdi Rashidi and Seyed Ali Hosseini Ebrahim Abad

The purpose of this study is to investigate the correlation between the price return of leading cryptocurrencies, including Bitcoin, Ethereum, Ripple, Litecoin, Monero, Stellar…

Abstract

Purpose

The purpose of this study is to investigate the correlation between the price return of leading cryptocurrencies, including Bitcoin, Ethereum, Ripple, Litecoin, Monero, Stellar, Peercoin and Dash, and stock return of technology companies' indices that mainly operate on the blockchain platform and provide financial services, including alternative finance, democratized banking, future payments and digital communities.

Design/methodology/approach

This study employs a Bayesian asymmetric dynamic conditional correlation multivariate Generalized Autoregressive Conditional Heteroskedasticity (GARCH) (BADCC-MGARCH) model with skewness and heavy tails on daily sample ranging from August 11, 2015, to February 10, 2020, to investigate the dynamic correlation between price return of several cryptocurrencies and stock return of the technology companies' indices that mainly operate on the blockchain platform. Data are collected from multiple sources. For parameter estimation and model comparison, the Markov chain Monte Carlo (MCMC) algorithm is employed. Besides, based on the expected Akaike information criterion (EAIC), Bayesian information criterion (BIC), deviance information criterion (DIC) and weighted Deviance Information Criterion (wDIC), the skewed-multivariate Generalized Error Distribution (mvGED) is selected as an optimal distribution for errors. Finally, some other tests are carried out to check the robustness of the results.

Findings

The study results indicate that blockchain-based technology companies' indices' return and price return of cryptocurrencies are positively correlated for most of the sampling period. Besides, the return price of newly invented and more advanced cryptocurrencies with unique characteristics, including Monero, Ripple, Dash, Stellar and Peercoin, positively correlates with the return of stock indices of blockchain-based technology companies for more than 93% of sampling days. The results are also robust to various sensitivity analyses.

Research limitations/implications

The positive correlation between the price return of cryptocurrencies and the return of stock indices of blockchain-based technology companies can be due to the investors' sentiments toward blockchain technology as both cryptocurrencies and these companies are based on blockchain technology. It could also be due to the applicability of cryptocurrencies for these companies, as the price return of more advanced and capable cryptocurrencies with unique features has a positive correlation with the return of stock indices of blockchain-based technology companies for more days compared to the other cryptocurrencies, like Bitcoin, Litecoin and Ethereum, that may be regarded more as speculative assets.

Practical implications

The study results may show the positive role of cryptocurrencies in improving and developing technology companies that mainly operate on the blockchain platform and provide financial services and vice versa, suggesting that managers and regulators should pay more attention to the usefulness of cryptocurrencies and blockchains. This study also has important risk management and diversification implications for investors and companies investing in cryptocurrencies and these companies' stock. Besides, blockchain-based technology companies can add cryptocurrencies to their portfolio as hedgers or diversifiers based on their strategy.

Originality/value

This is the first study analyzing the connection between leading cryptocurrencies and technology companies that mainly operate on the blockchain platform and provide financial services by employing the Bayesian ssymmetric DCC-MGARCH model. The results also have important implications for investors, companies, regulators and researchers for future studies.

Details

Journal of Enterprise Information Management, vol. 34 no. 5
Type: Research Article
ISSN: 1741-0398

Keywords

Article
Publication date: 10 April 2018

Taicir Mezghani and Mouna Boujelbène

This study aims to investigate the transmission of shock between the oil market and the Islamic and conventional stock markets of the Gulf Cooperation Council (GCC) countries…

Abstract

Purpose

This study aims to investigate the transmission of shock between the oil market and the Islamic and conventional stock markets of the Gulf Cooperation Council (GCC) countries during the oil shocks of 2008 and 2014.

Design/methodology/approach

This study uses two models. First, the dynamic conditional correlation–generalized autoregressive conditionally heteroskedastic model has been used to capture the fundamental contagion effects between the oil market and the Islamic and conventional stock markets during the tranquil and turmoil-crisis periods of 2008-2014. Second, the filter of Kalman has been used to capture the effects of pure contagion between the oil market and the GCC Islamic and conventional stock markets. The authors analyze the dynamic correlation between forecasting errors of oil returns and stock returns of GCC Islamic and GCC conventional indices.

Findings

The main findings of this investigation are: first, the estimation of the dynamic conditional correlation– generalized autoregressive conditionally heteroskedastic model for oil market and the Islamic and conventional stock markets proves that the Islamic and conventional stock markets and oil market displayed a significant increase in the dynamic correlation during the turmoil period, from mid-2008 and mid-2014. This proves the existence of contagion between the markets studied. Second, the authors analyze the dynamic correlation between forecasting errors of oil returns and stock returns of GCC Islamic and GCC conventional indices. They show a strong increase in the correlation coefficients between the oil market and the conventional GCC stock markets, and between the conventional and Islamic GCC stock markets during the oil crisis of 2014. However, there is no change in regime in the figure of the correlation coefficient between the oil market and the GCC Islamic stock markets during the 2008 financial crisis. This pure contagion is mainly attributed to the herding bias in 2014 oil crisis.

Originality/value

This study contributes to identifying the contribution of herding bias on the volatility transmission between the oil markets, and the GCC Islamic and conventional stock market, especially during two controversial shocks: the 2008 oil-price increase and the 2014 oil drop.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 11 no. 2
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 28 April 2023

Sadia Shafiq, Saiqa Saddiqa Qureshi and Muhammad Akbar

This paper aims to examine whether the volatility of returns in commodity (gold, oil), bond and forex markets is related over time to the volatility of returns in equity markets…

Abstract

Purpose

This paper aims to examine whether the volatility of returns in commodity (gold, oil), bond and forex markets is related over time to the volatility of returns in equity markets of Bangladesh, Indonesia, Pakistan, Philippines, Turkey and Vietnam. In addition, the authors analyze the integration of the commodity, bond, forex and equity markets across these markets.

Design/methodology/approach

The dynamic conditional correlation GARCH (DCC-GARCH) model is used to capture the time-varying conditional correlation among markets. The authors use daily data of stock prices, oil prices, gold prices, exchange rates and 10 years' bond yields of the six countries from Datastream and investing.com from January 2001 to April 2021.

Findings

Findings reveal that the parameters of dynamic correlation are statistically significant which indicates the importance of time-varying co-movements. Estimation of the DCC-GARCH model suggests that the stock market is significantly correlated with bond, forex, gold and oil markets in all six countries.

Practical implications

This study has practical implications for policymakers and investment professionals. A better understanding of dynamic linkages among the markets would help in constructing effective hedging and portfolio diversification strategies. Policy makers can get insight to build proper strategies in order to insulate the economy from factors that cause volatility.

Originality/value

Several studies have investigated the linkage between commodity and stock markets and the volatility spillover effect, but very little attention is given to study the interrelationship between groups of market segments of different economies. No study has comparatively examined the dynamic relationship of multiple markets of a group of emerging countries simultaneously.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 29 March 2022

Justine Wang, Mark Tomlins and Piyush Tiwari

The purpose of this paper is to examine information and volatility linkages among real estate, equity, bond and money markets in Australia.

Abstract

Purpose

The purpose of this paper is to examine information and volatility linkages among real estate, equity, bond and money markets in Australia.

Design/methodology/approach

A novel rational expectations framework of financial contagion (Kodres and Pritsker, 2002), along with a combination of robust statistical methods including simple and dynamic correlations and generalized impulse response (Fereidouni et al., 2014) have been employed using data covering three dynamic pre-pandemic economic cycles, namely, global financial crisis (GFC) period, pre-pandemic housing boom and pre-pandemic housing downturn from 2008 (February) to 2019 (December).

Findings

Results reveal information linkages across real estate, equity, bond and money markets through correlations in return and volatilities of these series. Finding indicates that the three financial markets (equity, bond and money markets) are interdependent and integrated through information and volatility linkages during the GFC period and pre-pandemic housing downturn period. Financial markets have stronger associations with real estate market during pre-pandemic housing boom. The findings contribute to the general notion that the performances of three financial markets are closely related to the “boom” phase of the real estate cycle.

Originality/value

This research provides an extension of existing literature regarding the information and volatility contagion of the expanded set of core investment markets in Australia. The findings could assist household buyers and investors in designing strategic investment portfolios/hedging strategies and minimizing asset specific risks through diversification over short-term and long-term. In addition, results could support the maintenance, growth and development of a combination of competitive balanced investment markets including real estate, equity, bond and money markets in post-pandemic economy.

Details

International Journal of Housing Markets and Analysis, vol. 16 no. 2
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 3 April 2018

Dogus Emin

This paper aims to test whether the latest global financial crisis propagated contagiously from the USA to the rest of the world.

Abstract

Purpose

This paper aims to test whether the latest global financial crisis propagated contagiously from the USA to the rest of the world.

Design/methodology/approach

If the reason of the propagation of a crisis is a normal time interdependence with the crisis origin country due to real linkages, the spread of crisis can be limited by implementing well-defined preventive policies. On the other hand, if a crisis propagates because of the speculative attacks or irrational behaviors, the “national policymakers will face difficulties in protecting their markets from such a crisis” (Kleimeier et al., 2003, p. 2). Therefore, separation of contagion and interdependence may provide crucial insights for policymakers to implement appropriate policies to prevent and/or stop the financial crisis. Hence, this paper compares the heteroscedasticity-corrected conditional correlations and dynamic conditional correlations in the tranquil and shock periods.

Findings

The findings were quite straightforward and consistent for both Forbes and Rigobon heteroscedasticity correction technique and dynamic conditional correlation (DCC) model. The Forbes and Rigobon technique failed to reject the null of no contagion for 25 countries in our data sample, while the DCC model failed to reject the null of no contagion for 21 countries. While heteroscedasticity-corrected correlation technique confirmed the presence of a contagion for six countries, the DCC technique confirmed the presence of a contagion for ten countries.

Originality/value

This study particularly investigates whether the subprime mortgage crisis spilled over contagiously to the rest of the world. To investigate whether there is a significant increase in the cross-market correlations between the crisis origin country, the USA and the rest of the world markets during the latest financial crisis, both heteroscedasticity-corrected correlation technique and DCC model are used.Therefore, this study possibly contributes well to the literature using a large country set and conducting the analysis from different angles for important properties.

Article
Publication date: 11 November 2014

S. Jamaledin Mohseni Zonouzi, Gholamreza Mansourfar and Fateme Bagherzadeh Azar

This paper aims to investigate opportunities of the short- and long-run international portfolio diversification (IPD) benefits by investing in the Middle Eastern oil-producing…

1019

Abstract

Purpose

This paper aims to investigate opportunities of the short- and long-run international portfolio diversification (IPD) benefits by investing in the Middle Eastern oil-producing countries. Over the past decades, IPD has been the integral feature of global capital markets. Several potential benefits like increasing returns and/or reducing risk have made investors to internationalize their portfolios. Solnik’s theory (1974) approved that gains can be achieved through IPD if returns in the different markets are not perfectly correlated. This may attribute to low correlations of equity returns among different economies. In this regards, there would be a large potential of diversification benefits for investors that diversify into new emerging group of economies such as equity markets of the main oil-producing countries. These markets are often segmented and they may ensure a superior return rate for a given risk level.

Design/methodology/approach

In most of the previous studies, Pearson’s correlation test is used to analyze the short-run relationship of market prices. However, recent empirical studies indicate that correlations between equity returns vary over the time. To examine the time-varying conditional correlation, this paper used the dynamic conditional correlation (DCC) model to investigate opportunities of the short-run IPD benefits. In addition, for the long-run linkage analysis, the autoregressive distributed lag (ADRL) approach introduced by Pesaran et al. (2001) is applied.

Findings

It is found that, the market returns of the sampled countries are not definitely correlated in the short- and long-term. So, international portfolio investors may get the short- and long-term diversification benefits by diversifying their portfolios among the Middle Eastern equity markets, namely, Iran, Bahrain, Qatar, Kuwait, Oman, Saudi Arabia and UAE.

Originality/value

This paper departs from earlier studies by focusing on the dynamic characteristics of correlation. Two main issues are pursued in this paper. First, instead of modeling the correlation by methods like Pearson correlation coefficient that consider the constant-correlation assumption, this paper directly uses the DCC model. Second, to empirically estimate the long-run relationship among stock markets in the Middle Eastern oil-producing countries, the ARDL approach is utilized. The ARDL approach is more robust and performs well for small sample sizes than other co-integration techniques.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 7 no. 4
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 4 February 2014

Shu-Mei Tseng and Pei-Shan Lee

The current conventional strategic management model is incapable of dealing with various questions on organizational management in a dynamically discontinuous environment. Hence…

7450

Abstract

Purpose

The current conventional strategic management model is incapable of dealing with various questions on organizational management in a dynamically discontinuous environment. Hence, how an enterprise can effectively apply its knowledge management (KM) capability and develop a uniquely dynamic capability in order to provide quick response to a dynamic environment has become an urgent need. The purpose of this paper is to discuss the above-mentioned issues.

Design/methodology/approach

In order to gain best exploration on KM capability, dynamic capability, and organizational performance, the questionnaire and statistical analytical techniques were used.

Findings

The results indicate that dynamic capability is an important intermediate organizational mechanism through which the benefits of KM capability are converted into performance effects at the corporate level. That is, KM capability enhances the dynamic capability of organizations. While dynamic capability, in turn, increases organizational performance and provides competitive advantages.

Research limitations/implications

This research applied a purposive sampling method and obtained a slightly inadequate number of respondents. Therefore, it is suggested that future research should apply a random sampling method to collect more responses and increase the generalizability.

Practical implications

This research aims to investigate KM capability, dynamic capability, and organizational performance, as well as establish and verify the patterns of the aforementioned relationships based on how enterprises implement their KM capabilities and dynamic capabilities to enhance organizational performance.

Originality/value

There is still little related literature investigating the relationships among KM capability, dynamic capability, and organizational performance. Hence, this study applies questionnaire methods as the main research tools in order to conduct an in-depth investigation into the influence of KM capability and dynamic capability on organizational performance. Furthermore, this research is expected to provide enterprises with valuable suggestions for management practices.

Details

Journal of Enterprise Information Management, vol. 27 no. 2
Type: Research Article
ISSN: 1741-0398

Keywords

Article
Publication date: 11 July 2016

Mehmet Balcilar, Gozde Cerci and Riza Demirer

The purpose of this paper is to examine the international diversification benefits of Islamic bonds (Sukuk) for equity investors in conventional stock markets. The authors compare…

Abstract

Purpose

The purpose of this paper is to examine the international diversification benefits of Islamic bonds (Sukuk) for equity investors in conventional stock markets. The authors compare the diversification benefits of these securities with their conventional alternatives from advanced and emerging markets. Compared to conventional bonds, Sukuk are backed by tangible assets and carry both bond and stock-like features. Furthermore, the Sharia-based limitations limit the risk in these securities as a result of ethical investing rules. The regime-based model provides insight to possible segmentation (or integration) of these securities from global markets during different market states.

Design/methodology/approach

Risk spillover effects across conventional and Islamic stock and bond markets are examined using a Markov regime-switching GARCH model with dynamic conditional correlations (MS-DCC-GARCH). Weekly return series for conventional (advanced and emerging) and Islamic stock and bond indices are examined within a regime-dependent specification that takes into account low, high, and extreme volatility states. The DCC are then used to establish alternative diversified portfolios formed by supplementing conventional and Islamic equities with conventional and Islamic bonds one at a time.

Findings

Asymmetric shocks are observed from conventional stocks and bonds into Islamic bonds (Sukuk). Compared to emerging market bonds, Sukuk are found to display a different pattern in the transmission of global market shocks. The analysis of dynamic correlations suggests a low degree of association between Islamic bonds and global stock markets with episodes of negative correlations observed, particularly during market crisis periods. Portfolio performance analysis suggests that Islamic bonds provide valuable diversification benefits that are not possible to obtain from conventional bonds.

Originality/value

This study provides comprehensive analysis of volatility interactions and dynamic correlations across Islamic and conventional markets within a regime-based framework and provides insight to whether these securities could serve as safe havens or diversifiers for global investors. The findings have significant implications for global diversification strategies, particularly during market crisis periods.

Details

Managerial Finance, vol. 42 no. 7
Type: Research Article
ISSN: 0307-4358

Keywords

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